Value Added Tax is a multi-point sales tax with set off for tax paid on purchases. A tax on the value addition on the product. Burden of tax is ultimately borne by the consumer.
HISTORY
German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. y Maurice Laur, Joint Director of the French Tax Authority, was first to introduce VAT on April 10, 1954. y 1968 reform : include all the sectors under VAT. y Over 120 countries worldwide have introduced VAT over the past three decades and India is among the last few to introduce it.
y
IN INDIA
of the States have already implemented VAT from 1 April, 2005. Manmohan Singh introduced the idea. Credit goes to former Finance Minister Shri Jaswant Singh for implementing it. Haryana was the first state to introduce VAT (year 2003). The committee of finance minister and chief minister had suggested for it in 1995 and 98.
Majority
No 1 2
States Haryana Andhra Pradesh, West Bengal, Kerala, Karnataka, Orissa, NCT Delhi, Tripura, Bihar, Arunachal Pradesh, Sikkim, Punjab , Goa, Mizoram, Nagaland, J & K, Manipur, Maharashtra, Himachal Pradesh, Assam and Meghalaya
3 4 5 6
Uttaranchal Rajasthan, Gujarat, MP, Chattisgarh and Jharkhand Tamil Nadu Uttar Pradesh
1 5 1 1
VAT Terminology
Output VAT : Amount received by a seller as a percentage of the gross sale price of goods or services Amount paid by a buyer as a percentage of the gross purchase price for goods or services used in production. Transactions in which the seller collects no output tax and the corresponding input tax is fully refundable. Exports are zero rated Transactions in which the seller collects no output tax but the corresponding input tax is non-refundable and absorbed by the seller. Financial services are commonly exempt.
Input VAT
Zero Rated
Exempt
FEATURES OF VAT
Tax levied and collected at every point of sale. y Tax levied and collected at every point of sale and the tax already paid by the dealer at the time of purchase of goods will be deducted from the amount of tax paid at the next sale. y Dealers reselling tax-paid goods will have to collect VAT and file returns and pay VAT at every stage of sale (value addition).
y
Why VAT?....
Encourage people to pay taxes. Avoid double taxation(cascading effect). Bringing uniformity in taxes(state/central). Avoiding additional tax, surcharge, turnover tax.
APPLICABILITY OF VAT
VAT would be payable on the sale of goods within the State. Liquor, lottery tickets, petrol, diesel, aviation turbine fuel and other motor spirit will continue to be governed by State Sales Tax laws or by special provisions under the VAT laws. VAT will not be imposed for one year after the introduction of VAT on AED items relating to sugar, textile and tobacco. VAT on imports and service tax targeted to be integrated along with with AED items into VAT in the second year.
BEFORE VAT
The indirect taxes imposed in India before VAT was: y Commodity tax y Excise Duty y MODVAT y CENVAT
y
Narrow tax base Every dealer who deals in taxable gds and whose t/o has exceeded the threshold limit. complicated No uniformity Normal Invoice Maximum scope for the evasion
VAT RATES
y
An individual, partnership, corporation, HUF etc, who sells goods in the course of business and who is registered or is required to register for VAT should pay VAT.
SUBTRACTION METHOD
The Subtraction method: Under this method the tax rate is applied to the difference between the value of output and the cost of input;
ADDITION METHOD
The Addition method: Under this method value added is computed by adding all the payments that are payable to the factors of production (viz., wages, salaries, interest payments, etc.);
Input supplier
manufacturer
Dealer
Retailer
To Government
To Government
Input supplierr
manufacturer
Dealer
Retailer
To Government
To Government
Input supplier
manufacturer
Dealer
Retailer
To Government
To Government
VAT CONTD.....
Price to Dealer = Rs.2,200 Recorded by dealer = Rs.2,000 Value added = Rs.500 S.P of Dealer = Rs.2,500 VAT @ 10% = Rs. 250 Price to Retailer = Rs.2,750 Recorded by Retailer= Rs.2,500 Value added = Rs.500 S.P of Dealer = Rs.3,000 VAT @ 10% = Rs. 300 S.P to customer = Rs.3,300 Dealer Retailer
Input supplier
manufacturer
To Government
To Government
60 60
206 140
28 50
33 50
are made by a VAT dealer in the state. are made in the course of or in furtherance of a business; and are not specifically exempt or Zero-rated.
Registration of dealers
dealers whose turnover is Rs. 5 lakhs or more will have to get registered. Then only they can get credit under VAT. Those with less than Rs. 5 lakh tunover are exempted, but they dont get credit also and they cant pass credit also. They will have to pay composition tax. The chain of VAT will break at that point.
All
Billing Lack of uniformity Concession for New Industry Number of Taxes impose by the Government Lack of infrastructure facilities Dealing in Variety of Goods
BENEFITS OF VAT
y y y y y
Reduction in tax evasion Spreading of tax burden over all parties Helps in boosting trade in particular state Simplicity and transparency Easy cross checking by Govt.
DISADVANTAGES OF VAT
VAT is regressive VAT is too difficult to operate from the position of both the administration and business. VAT is inflationary VAT favors the capital intensive firm
SOLUTION:1
Suggestions A change should be bought about in the mindset of the consumers, department officers and traders. y Customers should demand for invoices and bills and state must set up effective VAT monitoring cells. y At each stage the sale should carry an invoice which will help the manufacturers to monitor the selling price and can intervene if the traders inflate y This will help the consumer stands to benefit from the competition.
y y
Solution:2